Impact of International Institutions on Developing Countries - Essay Example

? Positive and negative impact of international s on developing countries Introduction International organizations play a remarkable role in enhancing various forms of development in developing countries. International institutions such as World Bank and United Nations Conference on Trade and Development have made significant contributions, which aim at alleviating poverty and encouraging development. The concerted efforts of these two global institutions have helped to address many problems facing developing countries. However, there are negative impacts that can be associated with the activities of these organizations in developing countries. The aim of this paper is to probe the positive and negative impacts of World Bank and UNCTAD on developing nations. Therefore, the paper will focus on how these institutions have contributed to development and how their influence has had negative impacts on developing nations. An overview of operations of international institution in Developing Countries Since the advent of globalisation, international organisations have increased their operations in developing countries. International trade has spread all over the world at a faster rate than experienced before this phenomenon. In their quest for economic, as well as social progress in the last four to five decades, developing countries have embraced policies that promote international trade. Consequently, their share of exports has increased to one third from one fourth during the 1960’s. The World Bank and UNCTAD have taken part in trade activities in regions such as Central America, East Asia, and Africa. The formation of these institutions aimed at enhancing global trade. With development loans offered by these institutions, developing nations have managed to carry out development projects (Young, 2000). While taking part in development activities, in developing countries, international institutions contend that an enabling international environment is of paramount importance. They argue that such an environment enables developing countries and other economies under transition to have successful integration into the economy of the world. International trade also allows developing countries to develop reliable capabilities of supply, which will be in line with the market demands, improve networking, promote development and transfer of technology, as well as increase productivity. International institutions emphasize that developing nations should promote growth and development by instituting policies, which will encourage international trade. As such, governments of developing countries should provide adequate resources, improve the capacity of institutions, enhance technological capacity, and improve infrastructure. Positive and negative impact of World Bank and UNCTAD on developing countries The World Bank came to being after the end of the Second World War; the political climate present during the time of its formation was different from the current political climate in the world of today. The institutional structures of this organization were incorporated in Bretton Woods, at an international conference held in New Hampshire. The initial purpose of forming the World Bank was to provide aid in terms of loans to developing nations. The main targets included the countries facing a crisis of balance of payment deficits and immense difficulties in settling debts (Wantchekon 2002, p. 59). Originally, the purpose and focus of World Bank aimed at lending money to European government of the West in order to assist them in rebuilding their countries as a result of the war. However, the attention of the World Bank later focussed on giving loans to developing countries for development purposes. UNCTAD came into being during the early years of 1960s. During the early 1960s, there grew concerns about the place of developing countries in international trade. This made most of these nations to advocate for the convening of a conference devoted to dealing with problems associated with trade in developing nations. The aim of the conference was to identify international actions, which could be appropriate in handling these problems. In 1964, the first United Nations Conference on Trade and Development convened in Geneva. The institutionalization of the conference was in such a way that it could meet after every four years (UNCTAD, 2001). Since the UNCTAD started its operations and activities across the world, it has had both positive and negative consequences on developing countries. Also, the World Bank has affected developing nations in both positive and negative ways. Positive Impacts of the World Bank A significant role of the World Bank in developing countries includes the alleviation of poverty. Since its formation, the World Bank has concentrated on sound investments and economic efficiency in developing countries. Most of the activities carried out by the World Bank have aimed at reducing the extent of poverty in developing countries. The institution has boosted the informal sector in developing nations in order to improve the income of the poor people. As a result, those living on less than one dollar in a day can afford meals with a lot of ease. The efforts of the World Bank have aimed at benefitting the unemployed in the developing countries. The Bank has contributed significantly in promoting the well being of unskilled labourers in developing countries (World Bank 2010, p. 3). Another role played by World Bank in developing nations includes its impact on the Environment. Over the years, the World Bank has promoted the sustainability of the environment, with various approaches aimed at minimizing harm on the environment. Some of the ways through which the institution promotes environmental sustainability include policies aimed at reducing harm to the environment, the minimization of harmful effects that may be caused by projects, and environmental improvement targeted at certain areas. The targeted improvement of the environment aims at establishing the link between development, poverty and the environment. The World Bank conducts Environmental Assessments, provides safeguard policies, and assistance aimed at improving the environment in developing countries. Developing countries receive funding from the World Bank to finance projects aimed at enhancing environmental sustainability and improvement (World Bank 2010, p. 7). The World Bank encourages development in developing countries through the provision of funding as well as technical assistance. The Bank boosts policies and projects that help in the realization of the economic potential of a country. To the World Bank, development is an integrated and long term endeavour that developing countries should work towards achieving. Developing countries have benefitted from assistance and funds that have helped in transportation as well as electricity projects. The World Bank has always maintained that projects, which improve infrastructure, are essential in encouraging development. However, with more insights into the process of development, the World Bank has widened its scope to cover a variety of projects (World Bank 2003, p. 143). The World Bank has given attention to projects that can be of direct benefit to the poorest and underprivileged people in developing countries. The poorest take part in economic activity through activities such as lending for the purposes of small scale enterprises, rural development, as well as development in urban areas. Through projects initiated by the World Bank, the poor people in developing countries have managed to access necessities such as health care, safe drinking water, nutrition, facilities for the disposal of waste, education, family planning assistance, and decent housing. The transportation projects of the World Bank have concentrated on the construction of roads that link farms to markets. Power and electricity projects also provide power and lighting for small firms and villages, as opposed to concentrating on cities (World Bank 2007, p. 12). The operations of the World Bank have had a positive impact on developing countries through industrial projects, which have emphasized on the creation of jobs in small enterprises. The World Bank has played an essential role in supporting the development of gas, oil, wood fuel, coal, as well as alternative energy sources such as biomass. While offering loans to the developing nations, the World Bank does not engage into competition with other agencies that provide finances. Rather, it finances the projects for which the capital required cannot be availed from other sources of finance on favourable terms (Jones 2007, p. 254). This helps in developing the economies of developing countries, thus helping them to stop relying on sources from the Bank. In addition, the World Bank helps developing countries succeed in meeting their financial needs on affordable terms. Another positive impact of the World Bank on developing countries encompasses the efforts of the Bank in fighting famine in order to reduce hunger and starvation. The World Bank has, over the years, promoted agricultural activities in the developing countries by promoting irrigation and providing subsidies to farmers. Most of the developing countries are affected by high instances of hunger and starvation, where many people may die resulting from widespread famine. To counter this, the World Bank funds irrigation projects in developing countries; this allows populations occupying dry lands to carry out farming and provide for their own food. The World Bank also encourages agriculture by necessitating the availability of markets for agricultural products from developing nations (Svensson 2000, p. 440). Positive Impacts of UNCTAD Since its establishment in 1964, UNCTAD has played a vital role in promoting development and integration of developing countries into the economy of the world. The institution has progressed into an organization rich in knowledge, working towards shaping policy debates. Moreover, the activities of the institution have influenced thinking on development in order to ensure that international action and domestic policies are supportive in enhancing development (UNCTAD, 2001). The Generalized System of Preferences of 1968 has allowed developed countries to improve markets to goods from developing countries. The institution has also initiated International Commodities Agreements, which have aimed at making sure that the prices of commodities from developing countries remain stable. The institution has also allowed developing countries to maintain their national merchant fleets through the Convention on a Code of Conduct for Liner Conferences (UNCTAD, 2003). Through dialogues and policy reviews, UNCTAD has continued to provide support to developing countries that depend on commodities, especially in Less Developed Countries and Africa. The institution has also provided technical assistance that has helped in the maximization of the benefits from trade, commodity production, and development. This has been coupled with the enhancement of diversification, as well as integration of policies on natural resources, into the development strategies of developing countries. The United Nations Conference on Trade and Development has played an essential role in helping developing countries negotiate agreements on trade. As a result, developing nations have witnessed remarkable success in exporting their products (Taylor 2007, p. 62). UNCTAD has succeeded in negotiating international trade agreements for developing countries. This has enhanced improvement in the efficiency of trade activities in these countries, reasonable prices for the goods from these countries, integration into the world economy, and diversification of production. Over the years, UNCTAD has reduced the gap in trade between developing and developed countries, thus accelerating economic growth in the developing countries. The institution has fostered trade activities in developing countries through the formulation of policies and principles on international trade. In order to implement these policies and principles, the institution makes the appropriate proposals that encourage trade in developing countries (Rudra 2005, p. 710). UNCTAD has contributed to the establishment of price stabilization mechanism; this ensures that commodities from developing countries are not undervalued in the market. In order to enhance trade in developing countries, UNCTAD has established preferential tariffs for goods sold from markets of developing countries to already developed countries. United Nations Conference on Trade and Development has also contributed in financial assistance of developing countries. This has helped to increase production, self reliance, and sustainability in developing countries (Jolly 2004, p. 105). UNCTAD has also had a positive impact in developing countries in terms of the enhancement of proper governance, peace, freedom, security, respect for human rights, and domestic stability. The activities of the institution in developing countries have promoted gender equality, transparency, and the rule of law in developing countries. As a result of the institution, many developing countries have made efforts to achieve democracy, which has contributed to equitable and sustainable growth and development. The institution has contributed immensely to employment creation and poverty alleviation in most of the developing countries (Jolly 2004, p. 107). UNCTAD has assisted most of the developing countries to set up solid democratic institutions, which respond to people’s needs. Through the institution, equitable distribution of resources, income, human and physical infrastructure has become a reality. Negative impacts of World Bank and UNCTAD on Developing Countries Despite the positive impacts of international institutions such as World Bank and UNCTAD on developing countries, these institutions have negative impacts on the developing countries. One of the notable negative impacts can be attributed to Structural Adjustment Programs (SAPs) advocated by World Bank. The Bretton Woods Institutions introduced these programs with the ultimate aim of improving the efficiency of economy in developing countries. They also aimed at removing distortions in the macroeconomic structure as well as in the market (Knack 2004, p. 255). The measures advocated by World Bank included privatization, reduction in government expenditure, making prices free, and the devaluation of currency. However, critics argue that these measures have had more effects on the formal sector than the informal sector. The informal sector is mainly found in the developing countries, in Africa and Asia, and it represents the most vulnerable and poorest people in the society. As such, the poor in developing countries do not reap the maximum benefits resulting from economic expansion due to SAPs. Moreover, the reduction in government spending hurts the poor in developing countries since it has an impact on social spending. Governments of developing countries are also unable to protect the prices of basic necessities. The devaluation of currency advocated by the World Bank has had impacts of causing inflation in some developing countries. This has resulted from the low value of the currency in developing countries, thus making food prices go up. The Structural Adjustment Programs have affected agricultural production in developing countries, especially through the reduction of subsidies to farmers for the growing of food crops (Kerr & Gaisford 2008, p. 465). The other negative impact of World Bank on developing countries includes the conditionality imposed on developing countries. In order for the developing countries to receive aid from the World Bank, they must adhere to the conditions set by the institution. Countries in the third world should follow the reforms advocated by the World Bank, failure to which they will not be granted adequate aid. The institution has come up with a strict system for rewards and punishments, which discourages commitments of the developing countries in borrowing from the institution (Page 1994, p. 84). Conditionality also hinders and affects the belongingness and a feeling of ownership of the reform and development process. When the public in the developing countries does not support the policies of the institution, political stability may increase, leading to the failure of macroeconomic reforms (Griffith-Jones & Bhattacharya 2001, p. 14). The policies and programs of the World Bank may also have an impact on economic liberalisation in developing countries. Credit is availed on the basis of compliance to the conditions set by the World Bank. Some conditions such as a reduction in the expenditure of the government may hinder the provision of basic services like social amenities. The conditions set by the World Bank tend to influence the politics, governance, and leadership in developing countries (Babb 2009, p. 212). Thus, the institution may have an impact on the politics of developing countries. This hinders the sovereignty and the independence of the countries to govern themselves without any influence from the outside. The World Bank can be criticised for advancing the interests of the Western powers at the expense of poor developing countries. The undemocratic structure governing the Bank consists of industrialised countries. The Bank offers privileges to the private sector, thus leading to controversy concerning the development of the institution. The strong partnership that the World Bank has with the private sector undermines the authority of the state in developing countries. As a result, the developing countries may face difficulties in providing essential services such as education and health care, thus leading to the inadequacy of such services. The private lending arm of the World Bank has, at times, concentrated on encouraging the private sector (Buira 2003, p. 28). The United Nations Conference on Trade and Development has also had negative impacts on the developing countries. Over the years, the institution has emphasized the adoption of Foreign Direct Investments as a means of promoting trade in developing nations. As a result, multinational corporations have invested in developing countries with the aim of reaping the maximum benefits accorded by international trade. The presence of multinational corporations in developing countries has contributed to a fall in domestic industries (Faundez, 2010). Most of the products consumed in developing countries come from industries of foreign origin, as opposed to the consumption of products from local industries. Large foreign corporations kill the emerging industries in developing countries, thus discouraging local investors. The United Nations Conference on Trade and Development has encouraged cartels to operate in developing countries. The institution has emphasized on agreements that do not allow competition in the market. This has made cartels harm consumers, especially in the developing countries. Consumers in these countries are exploited through high prices of the commodities they purchase and the low quality of goods sold by the cartels. The lack of competition also affects the overall performance of the economy in developing countries. Cartels have had the opportunity to exploit consumers at will since the institution gives them a favourable environment in which to operate (Baffoe-Bonnie & Khayum 2003, p. 5). Through UNCTAD, western powers have gained access to the developing countries where they can invest in industries, some of which engage in production and manufacturing. International trade has allowed organizations to set up factories, which manufacture goods to be sold all over the world. Some of these industries emit harmful gases that cause adverse effects on the environment. These gases affect the climate and weather conditions in developing countries. Consequently, this affects production, especially in the agricultural sector, which forms the backbone of the economy in most of the developing countries (UNCTAD, 2001). Conclusion While concluding this study, it is worth noting that international institutions have positive and negative effects on the developing countries. The World Bank and UNCTAD have contributed to the well being of developing countries. However, these institutions have affected developing countries in adverse ways. The World Bank has offered financial aid through loans for the initiation of projects in developing countries. Some of the areas of focus have included education, healthcare, and the reduction of poverty levels in developing countries. However, the World Bank has introduced some policies such as Structural Adjustment Programs that have hindered economic growth in developing countries. UNCTAD has fostered international trade in developing countries and enhanced the provision of markets for goods from developing countries. However, the policy of the institution to encourage non competition has adverse effects on consumers in developing countries. References List Babb, S. (2009). Behind the Development Banks: Washington Politics, World Poverty, and the Wealth of Nations, Chicago, University of Chicago Press. pp. 207-216. 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